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Trump Rally Keeps Shine On Steel Stocks

The steely resolve that saw Donald Trump emerge victorious despite many writing him off seems to have caught on with the steel sector.

The Market Vectors Steel (ETF) SLX has been up over 18 percent since the November 8 elections. Most bellwethers stocks in the space are now either at or close to their multi-year highs.

Early 2016 – Inflection Point?

Even before Trump's victory, steel stocks seemed to shake off the sluggishness that had plagued them since 2010. Steel stocks heralded 2016 by making a turn for the better, with the government's initiative to penalize dumping of steel by Asian countries proving salubrious for the stocks. The Commerce Department's initiative of imposing import taxes as high as 522 percent on some steel helped the U.S. companies gain a strong foothold on a level playing field.

Trump's Victory Cements Stocks

Trump's election victory only served to give a second wind to the rally that was already in the works in the steel space. Why is Trump positive for steel stocks?

Under Trump, analysts see infrastructure spending getting a big thrust. Ahead of the election, the president-elect promised double of what Hillary Clinton proposed, which put his proposed spending at $550 million. This would mean more steel consumption, driving up the demand side of the equation, which in turn is positive for the top line performances of steel companies.

Notwithstanding this, Trump, with his "Make America great again" slogan is seen to shun anything alien and support anything native to the core. Consequently, analysts see further trade protection accorded to domestic steel companies on top of what was done earlier this year.

A sector that was shunned, dumped and deserted has seen patronage increasing this year. Analysts who predicted doom for steel stocks last year are reversing their stance and think now might be the time to buy.

Now the next question that begs an answer is whether the steel rally has run its course -- the rally may last through the end of the year, as the year-end Santa Claus rally takes over. The sustenance of the rally depends on the policy moves Trump make and their efficacy.

Until then, rise the rally and as the saying goes, enjoy it while it lasts.